After Versant Ventures and Bayer unveiled last December their US$225-million deal to establish BlueRock Therapeutics, a stem cell therapy commercialization venture, international biotech investors quickly sat up and took notice. “It’s a monster,” a U.K.-based executive for the Silicon Valley Bank told The Wall Street Journal at the time, noting that the sweet spot for such investments is in the US$20-million range.

Described as Canada’s second-largest biotech underwriting, the BlueRock deal offers an unprecedented degree of financial certainty. It will propel the project to the clinical trial stage, say executives and scientists tied to the firm. Versant, which also has offices in Vancouver and Switzerland, is a giant in the biomedical space, with US$1.9 billion under management and 65 exits via IPOs.

“You don’t have to worry about resources,” says Gordon Keller, a Canada Research Chair in embryonic stem cell therapy and the principal investigator in the regenerative science behind BlueRock, speaking on a panel at a recent health investor conference at MaRS. “We can focus on getting the work done.”

But the BlueRock deal, which involves patents and IP from some of the world’s top stem cell researchers, reveals more than just the importance of providing scientists with long runways. Versant executives and Toronto’s University Health Network researchers say the partnership shows that ambitious, globally minded venture investors can leverage Toronto’s hospital sector, its diverse labour force, other local biotech firms and various commercialization hubs to advance what’s seen as a breakthrough therapy for treating heart disease, certain cancers and Parkinson’s disease.

There’s more research concentrated here than just about any place in the world

“When the idea for BlueRock was coming together,” says BlueRock founder and Versant entrepreneur-in-residence Eric Soller, another participant on the panel, “we were combing the globe for the best cardiac programs.” After considering West Coast options, “we found the elements were here in Toronto.” Versant also has a stake in another Toronto biotech firm, Northern Biologics, whose principals introduced Soller to Keller.

The story began with the federal government’s campaign to bring top researchers back to Canada. Keller was one; he did his post-doc in Toronto and then spent 25 years in the United States, before returning a decade ago to head UHN’s McEwen Centre for Regenerative Medicine. “There’s more research concentrated here than just about any place in the world,” he says. “In many ways, it made sense to come back here and do big things.”

Keller has since attracted many other top researchers, among them Michael Laflamme, a cardiac cell therapy pioneer who moved to UHN in 2015 from the University of Washington and will now serve as BlueRock’s founding investigator.

Another key element that drew Versant and Bayer to Toronto was the six-year-old non-profit CCRM, also based at MaRS. It will begin building the capacity to industrialize the production of therapy stem cells in the quantities – billions or trillions – needed for large-scale clinical trials, with the goal of eventually commercializing a therapy. Because Keller and his team have placed a heavy emphasis on developing and testing the most effective stem cells, BlueRock’s ability to bring these therapies to market depends on a highly standardized process for replicating them.

“CCRM’s role has been about the manufacturing,” says its CEO Michael May. “It’s important for Canada to lead in the science, but also in the industrial manufacturing [of the stem cells]. That’s where we get employment and stickiness.”

CCRM’s manufacturing facility involves a partnership with GE Healthcare, which is identifying and building the technologies required to expand the operation to commercial scale. Ultimately, May says, there will be about 35 people on the manufacturing team, who will also help other therapeutics companies gravitating to the city’s biotech scene. CCRM has seen the number of international inquiries from biotech companies about its facilities jump two- to three-fold since the BlueRock deal was announced, May says. For its part, CCRM also informs these biotechs about the density of clinical facilities on University Avenue, where the city’s major hospitals are located.

Courtesy CCRM

The final component that drew Versant and Bayer to Toronto was access to UHN for clinical trials, says Bradly Wouters, a senior scientist at Princess Margaret Cancer Centre. He points out that $400 million of the UHN’s $2.1-billion budget now goes to clinical research, making it equal in size to some of the largest R&D spends among private Canadian corporations. “UHN was interested in working on the back end to facilitate clinical trials with products and move them forward to commercialization,” he says.

Beyond the particulars of this project, BlueRock offers further evidence of a longer-term strategic shift in biomedical research. Large pharma firms are saving millions by doing less in-house R&D and instead collaborating with early-stage startups, specialized venture pools and academic institutions.

For example, Johnson & Johnson Innovation, a division of the US$74.3 billion healthcare behemoth Johnson & Johnson, set up its first international JLABS incubator at MaRS in 2015, with an eye to partnering with local scientists and entrepreneurs.

And as MaRS’ CEO, Ilse Treurnicht, points out, that decision, plus the Versant-Bayer joint venture, is attracting other bio-medical deals. She points to Highland Therapeutics, which raised US$263 million from Morgan Stanley in January for the development of a breakthrough ADHD therapy. “This is a hugely important next step in terms of the validation of what’s here,” she says. The BlueRock announcement has “made investors look at the opportunities in Toronto.”